Should you cash in your pension to become a buy-to-let landlord or keep your retirement savings invested?

Over-55s will be able to cash in their entire pension after sweeping reforms this April, an opportunity that could tempt many to plunge their lifetime savings into the property market and become buy-to-let landlords

For those wealthy enough to drum up a big enough deposit or buy outright, this is a very popular way to generate an income and potentially make capital gains in the longer term as house prices continue to rise in many parts of the country.

Some newly-flush pension savers might well jump at the chance to join Britain's growing army of amateur landlords, given that interest rates remain stubbornly low and shares are volatile - notwithstanding this week's record FTSE 100 high.

Best returns? Share investors have raked in more over 30 years but homeowners beat them during the period of rampant property price inflation since 2000, according to recent research

But there are pitfalls to accessing buy-to-let in this way, first and not least the huge tax bill you could face if you withdraw all or a large portion of your pension to buy a property - a move that could easily propel you into the higher 40 per cent or even 45 per cent tax bands.

That's before you even embark on the process of finding and acquiring the right property, filling it with suitable tenants, and dealing with the administrative hassles of being a landlord.

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Retirees seeking a reliable income stream, plus the possibility of growing their savings, might decide they are better off putting their money in a lower-maintenance invest-and-drawdown scheme instead.

In terms of returns, recent research into popular investments suggests that share investors have raked in more over 30 years, but homeowners beat them during the period of rampant property price inflation since 2000.

For those weighing up what to do once they get unfettered access to their lifetime savings in April, here's a guide to what's involved in taking the buy-to-let or investment routes.

WHAT IS PENSION FREEDOM?

'Pension freedom' reforms will give people greater power over how they spend, save or invest their retirement pots from next April.

Key changes include removing the need to buy an annuity to provide income until you die, giving access to invest-and-drawdown schemes previously restricted to wealthier savers, and the axing of a 55 per cent 'death tax' on pension pots left invested.

Also, savers won't be limited to one chance to take a single tax-free lump sum worth 25 per cent of their pension pots, with the rest taxed as income afterwards.

Instead, Chancellor George Osborne has announced that people will be able to dip in and make as many withdrawals as they want, each time getting 25 per cent tax-free and the rest taxed like income.

The changes apply to people with 'defined contribution' or 'money purchase' pension schemes, which take contributions from both employer and employee and invest them to provide a pot of money at retirement.

They don't apply to those with more generous gold-plated 'final salary' pensions which provide a guaranteed income after retirement.

Do you want to become a buy to let landlord to fund your retirement?

Buy-to-let property has proved an attractive investment for many people, especially given the alternatives in recent years. The financial crisis triggered huge stock market volatility, while central bank stimulus efforts have decimated savings rates.

Those seeking better returns have turned to the property market, and unless they were very imprudent or unlucky, the bet has paid off handsomely.

Prices have stayed buoyant, not only providing capital gains but making home ownership prohibitive for many people who were forced to carry on renting, which has provided a convenient stream of tenants for buy-to-let landlords.

The Government has used various measures to prop up the housing market, like its Funding for Lending and Help to Buy schemes. Now its pension freedom reforms could create a new buy-to-let boom, potentially pushing up prices again and making this an even better investment prospect.

If you are currently pondering whether to cash in your pension in April and use it to get into the buy-to-let business, there are a number of issues which might help sway your decision.

Everyone aged over 55 will be able to access their whole pension pot - but just like now, only 25 per cent of retirement savings will be tax-free while the rest will be taxed as income.

Workers used to simply paying the basic rate of tax through employers might not realise dipping too freely into their pension pot at retirement will put them into the higher rate tax bracket

The 20 per cent basic rate tax threshold will be £10,500 a year from next April, while the 40 per cent higher rate of tax will kick in for those earning more than £42,285.

People will be able to avoid getting a big tax bill by taking small enough sums to keep them below the higher rate annual threshold - but that could mean they won't have enough for a deposit on a buy-to-let property, let alone to purchase one outright.

Financial services firm Hargreaves Lansdown recently compared how three separate income strategies likely to be popular with retirees. Its three scenarios all involve someone with a £300,000 pension pot looking to preserve capital and make a sustainable income.

The strategies were investing in a buy-to-let property, withdrawing all the money to place in Isas, and combining Isas with income drawdown.

It found paying tax upfront for accessing all your retirement savings would be a significant drag on future returns. See the table below.

Source: Hargreaves Lansdown

Read more here on how to avoid paying too much tax when taking your pension cash.

2) Like all other buy-to-let investors, you will have to do your sums and work out whether it's really the best option for you.

Compare the potential rental income to what you'd get on an income-based investment fund or a fixed rate savings account, and also investigate the income drawdown schemes we describe below.

You also need to be prepared to do some research into the best area to buy in, and the type of property that will be easiest to rent out there, before making a purchase.

Read more here about the financial risks and rewards of buy-to-let, and how to find the right property.

3) Unless your pension pot is very big, you will need to look for a buy-to-let mortgage. Be prepared to shop around, or to use a specialist broker.

5) As well as keeping up with the paperwork, be prepared that renting out a property is likely to involve some practical hands-on work.

Unless you are prepared to pay a letting agent to take care of every last thing for you - and can find one you trust to do this properly - you will have to deal with tenants and cope with anything that arises yourself.

That can range from broken boilers, to disputes with neighbours, to tenants sneakily moving their mates in to cut their rent bill.

Bear in mind that you might feel up to such practical challenges right now, but will probably become less able to do so as you grow older. Consider whether a younger family member or friend would be prepared to help out if it gets too much, or if you get sick.

You can always sell up, but if you are suddenly forced to do so through ill health, the property market might not necessarily be at its most favourable.

BUY-TO-LET: TOP TIPS, FREE ADVICE AND THE BEST RATES

For many buy-to-let looks an attractive income investment in a time of low rates and stock market volatility.

But if you are considering investing in property in 2014 - or improving your returns on a buy-to-let you already own - it's important to do things right.

Read Mail Online's award-winning money section This is Money for its top ten buy-to-let tips - the essential guide to successful property investing.

Do not just walk into your bank and building society and ask for a mortgage.

It sounds obvious, but people who do this when they need a financial product are one of the reasons why banks make billions in profit.

Do you want to keep your pension invested to provide for your old age?

Using an income drawdown scheme to fund your retirement instead of buying an annuity is set to become a far more popular option following the pension freedom reforms.

Flexible income drawdown allows you to take sums out of your pension pot as and when you want while the rest remains invested, but until this year it's been restricted to wealthy people who can prove they have other guaranteed income.

Annuities provide retirees with a guaranteed income for life, but are deeply unpopular due to their recent poor returns, and purchases have already fallen dramatically.

But buying an annuity is at least straightforward and involves no further work or decision-making - once you commit, that is it.

Choosing the right drawdown plan in the first place is more complicated, but it's vital. You want your retirement savings to provide an income and hopefully keep growing as well, but that will all depend on the underlying investments in the scheme. Even after it's all set up, you will need to keep reviewing these, to ensure they are performing well enough.

Pension freedom: If you can't afford help or don't think advice is worth the cost, you will have to do your own homework

There are several different types of drawdown scheme, so read our round-up of what's available now and what might be launched in the future.

The Government is offering everyone free guidance sessions on pension freedom, but these won't give personalised advice. You certainly won't be told which investment funds to put your money in, or where to switch your money if they aren't performing.

You can turn to a financial adviser, who will levy an initial fee for the start-up work and then an ongoing fee if you want your investments reviewed and rebalanced on a regular basis such as every year.

The cost of financial help has dropped 14 per cent in the past year, according to recent research by adviser website Unbiased. However, it found the cost of advice on setting up a drawdown scheme for a £300,000 pension fund has stayed at £3,000 for the past three years.

It might be worth stumping up the adviser fees to get your finances in order at the start of retirement. Try to get one through word of mouth or search for one here.

If you can't afford help or don't think advice is worth the cost, you will have to do your own homework. Read more here about how to choose between an adviser and doing it yourself and here about to become more savvy with pension investments.

Keeping your pension invested in retirement is unlikely to be as big a job as becoming a buy-to-let landlord, but it will still require some effort.

You can decide you've had enough after a certain point, and buy an annuity with what's left of your pot to gain some certainty over your income. Annuities are poor value at present, but might look a better prospect when interest rates start rising again.

Number crunching: Hargreaves Lansdown compared how three income strategies - investing in a buy-to-let property, putting money in Isas, and combining Isas with income drawdown - might fare over 20 years